“As we have said in the past, 2018 was the year in which the Company successfully positioned itself with unique and strategic partnerships, geared to effectively accelerate commercialization, and we are in the midst of benefiting from these efforts, and I would like to thank investors for their patience,” said Mr. P. Peter Pascali, President and CEO of PyroGenesis. “Recent results have been significantly affected by management’s decisions in 2018 to pursue strategic partnerships at the expense of revenues. However, as a result, we have press released imminent contracts in excess of $32MM, with associated future revenues, well in excess of that which, in my opinion, fully justified that strategy. At the risk of repeating myself, let me remind readers of the importance of reading 2019 results to date in the context of these decisions and recent press releases.”

Q2 2019 results reflect the following highlights:

Revenues of $913,769, a decrease from $1,421,352 posted in Q2 2018;

Gross margin of 20% a decrease of 15% over the same period in Q2 2018;

Fair value of investments decreased to $339,313, versus ($66,000) a decrease of $405,313;

Leasehold improvements of $227K were spent in building a clean room for plasma atomization system;

A Modified EBITDA loss of $1.4MM compared to a Modified EBITDA loss of $1MM over the same period in Q2 2018;

Backlog of signed contracts as of the date of this writing is $10.5MM;

Cash on hand at quarter end: $1.3MM (December 31, 2018: $645K).

The following is a summary of PyroGenesis’ main activities.

Outlook

2019 is turning into the year that bears the fruit of 2018 strategies, in which PyroGenesis successfully positioned itself with unique and strategic partnerships, geared to effectively accelerate commercialization in two of its three business segments.

In 2018, the Company successfully positioned each of its commercial business lines for rapid growth by strategically partnering with multi-billion-dollar entities who have identified PyroGenesis’ offerings to be unique, in demand, and of such a commercial nature as to warrant such unique relationships.

By the end of 2018 PyroGenesis could boast of a unique relationship with a multi-billion-dollar entity in each of its three commercial offerings:

Most companies would be thankful for one such relationship, but PyroGenesis has successfully developed three.

It became readily apparent to management that partnering with the right entity could significantly accelerate commercialization in each of its new business lines. This, however, would come with a cost in 2018. In order to succeed, PyroGenesis would have to dedicate significant resources to demonstrating the value proposition, and capabilities, to these entities. This meant that assets which should have been dedicated to sales now had to be deployed to developing these relationships. This not only impacted revenues, but it also increased costs of non-paying projects. We have seen this effect continue into Q1 2019 which, as expected, has continued into Q2, 2019.

To date, PyroGenesis has announced that it should be awarded a two-ship build for its PAWDS unit, for approximately $13.5MM. Add to this the recently announced potential contract with first year revenues of $20MM (plus significant subsequent years revenues) and the impact of this strategy is apparent: over $32MM in revenues over the next 18 months. Approximately 6x 2018 revenues.

2019 should also see the Company takes steps, outside of the ordinary course of business, to unlock additional value for investors.

One such step that has been announced is the spin-off of the Company’s additive manufacturing capabilities.

Another step, which is likewise outside the ordinary course of business, and is geared to unlocking shareholder value, is the previously announced up-listing of the Company’s stock to a more senior exchange other than the one the Company is currently on. This is projected to commence in earnest once the contacts noted above are successfully signed.

There are other steps, outside the ordinary course of business, that the Company is considering, to further increase shareholder value.

In short, 2019 is playing out to be the first of many years which will bear the fruit of strategic decisions made in the recent past.

Financial Summary

Revenue

PyroGenesis recorded revenue of $913,769 in the second quarter of 2019 (“Q2, 2019”), representing a decrease of 36% compared with $1,421,352 recorded in the second quarter of 2018 (“Q2, 2018”).

Revenues recorded during the six months ended June 30, 2019 were generated primarily from:

(i)

PUREVAP™ related sales of $239,836 (2018 Q2 - $1,538,550);

(ii)

Torch related sales of $297,235 (2018 Q2 - $Nil);

(iii)

Support services related to PAWDS-Marine systems supplied to the US Navy $455,427 (2018 Q2 - $706,595).

Cost of Sales and Services and Gross Margins

Cost of sales and services before amortization of intangible assets was $723,641 in Q2 2019, representing a decrease of 22% compared with $924,954 in Q2 2018.

The gross margin for Q2 2019 was $185,349 or 20.3% of revenue compared to a gross margin of $496,398 or 34.9% of revenue for Q2 2018.

As a result of the type of contracts being executed, the nature of the project activity had a significant impact on the gross margin and the overall level of cost of sales and services reported in a period, as well as the composition of the cost of sales and services, as the mix between labour, materials and subcontracts may be significantly different.

The amortization of intangible assets of $4,779 in Q2 2019 and $Nil for Q2 2018 relates to patents and deferred development costs. Of note, these expenses are non-cash items and will be amortized over the duration of the patent lives.